top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

Published: 08 June 2024

Effect of Representativeness Bias, Availability Bias and Anchoring Bias on Investment Decisions

Muhammad Bayu Aji Sumantri, Neneng Susanti, Pebri Yanida

Widyatama University, Indonesia

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.07.02.586

Pages: 199-206

Keywords: Behavioral Finance, Investment Decision, Financial Bias

Abstract

This study aims to determine the effect of three types of financial behavioral bias, namely representativeness bias, availability bias, and anchoring bias on investment decisions. This study uses a quantitative method with a purposive sampling technique. Data were collected through questionnaires and analyzed using Structural Equation Modeling (SEM) with the help of SmartPLS 3.0 software. The results of the study show that the two types of financial behavioral bias have a significant effect on investment decisions which are the representativeness bias and the availability bias on investment decisions, while anchoring bias does not have an effect on investment decisions. This research can contribute to investors to better understand the effect of financial behavior bias on investment decisions and to take wiser actions in investing.

References

  1. Baker, H. K., & Nofsinger, J. R. (2002). Psychological biases of investors. Financial Services Review, 11(2), 97116.

  2. Ikram, Z. (2016). An Empirical Investigation on Behavioral Determinantson, Impact on

  3. Investment Decision Making, Moderating Role of Locus of Control. Journal of Poverty, Investment and Development, Vol.26.

  4. Ritter, J. R. (2003). Behavioral Finance. Pacific-Basin Finance Journal, 11(4), 429-437.

  5. Kahneman, D., & Tversky, A. (1974). Judgment under uncertainty: Heuristics and biases. Science, 185, 1124-1131.

  6. Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica: Journal of the econometric society, 47(2), 263-291.

  7. Lord, C. G., Ross, L., & Lepper, M. R. (1979). Biased assimilation and attitude polarization: The effects of prior theories on subsequently considered evidence. Journal of personality and social psychology, 37(11), 2098-2109.

  8. Pompian, M. M. (2006). Behavioral finance and wealth Management (How to Build Optimal Portfolio That Account for Investor Biases): Wiley & Sons

  9. Shefrin, H. (2005). A behavioral approach to asset pricing. Burlington, MA: Elsevier

  10. Alkhars, M., Evangelopoulos, N., Pavur, R., & Kulkarni, S. (2019). Cognitive biases resulting from the representativeness heuristic in operations management: An experimental investigation. Psychology Research and Behavior Management, 12, 263–276. https://doi.org/10.2147/PRBM.S193092

  11. Badshah, W., Irshad, S., & Hakam, U. (2016). Effect of Representativeness Bias on Investment Decision Making. Management and Administrative Sciences Review, 5(1), 26–30. https://www.researchgate.net/publication/328996161

  12. Dangol, J., & Manandhar, R. (2020). Impact of Heuristics on Investment Decisions: The Moderating Role of Locus of Control. Journal of Business and Social Sciences Research, 5(1), 1–14. https://doi.org/10.3126/jbssr.v5i1.30195

  13. Elhussein, N. H. A., & Abdelgadir, J. N. A. (2020). Behavioral Bias in Individual Investment Decisions: Is It a Common Phenomenon in Stock Markets? International Journal of Financial Research, 11(6), 25. https://doi.org/10.5430/ijfr.v11n6p25

  14. Jain, J., Walia, N., & Gupta, S. (2020). Evaluation of behavioral biases affecting investment decision making of individual equity investors by fuzzy analytic hierarchy process. Review of Behavioral Finance, 12(3), 297–314. https://doi.org/10.1108/RBF-03-2019-0044

  15. Javed, H., Bagh, T., & Razzaq, S. (2017). Herding Effects, Over Confidence, Availability Bias and Representativeness as Behavioral Determinants of Perceived Investment Performance: An Empirical Evidence from Pakistan Stock Exchange (PSX). Journal of Global Economics, 06(01), 1–13. https://doi.org/10.4172/2375-389.1000275

  16. Onsomu, Z. N., Kaijage, P. E., Aduda, P. J., & Iraya, C. (2017). Demograpics and Investors Biases at the Nairobi Securities Exchange, Kenya. Interntional Journal of Arts and Commerce, 6(5), 51–60.

  17. Parveen, S., & Siddiqui, M. A. (2017). Decision Making and Behavioral Heuristics of Investors in Non-Financial Sector: A Case of Pakistan Stock Exchange. Journal of Managerial Science, 11(3), 109–126.

  18. Shah, S. Z. A., Ahmad, M., & Mahmood, F. (2018). Heuristic biases in investment decision-making and perceived market efficiency. Qualitative Research in Financial Markets, 10(1), 85–110. https://doi.org/10.1108/qrfm-04-2017-0033

  19. Siraji, M. (2019). Heuristics Bias and Investment Performance: Does Age Matter? Evidence from Colombo Stock Exchange. Asian Journal of Economics, Business and Accounting, 12(4), 1–14. https://doi.org/10.9734/ajeba/2019/v12i430156

  20. Subramaniam, A., & Velnampy, T. (2017). The Role of Behavioural Factors in the Investment Decisions of Household Investors. International Journal of Accounting and Financial Reporting, 7(1), 392. https://doi.org/10.5296/ijafr.v7i1.11421

  21. Suci Sudani, F., & Putri Pertiwi, I. F. (2022). Financial Information Analysis to Minimize Availability Bias, Representative Bias, Anchoring Bias and Adjustment Bias, and Overconfidence Bias in Ivestment Decision Making (Study on Investors at the Sharia Investment Gallery of UIN Raden Mas Said. Social Science Studies, 2(5), 446–460. https://doi.org/10.47153/sss25.3852022

  22. الربضي, د. و. ح., العبدالله, ش. ي., & أبو الجرايش, ن. ا. (2018). Behavioral Biases And Investment Performance, Does Gender Matter ? :, Evidence From Amman Stock Exchange. المجلة الأردنية للعلوم الاقتصادية, 5(1), 77. https://doi.org/10.35516/1250-005-001-006

bottom of page